-•^aijTi^;^  viREg. 


HOMER  H.  SWANEY. 


UUiD    Llt5KMKl 


uh^^n  vir^Eg. 


A  corporation  is  an  artificial  person  created  by  law  for  a 
specific  purpose,^  with  such  a  grant  of  privileges  as  secures 
a  succession  of  members,^  without  losing  its  identity.  It 
exists  independent  of  the  persons  who  compose  it,-''  but  has  no 
existence  independent  of  the  acts  creating  it,^  and  derives  all 
its  powers  from  those  acts,^  and  its  powers  are  specifically 
granted  and  can  only  be  exercised  for  the  purposes  con- 
templated/' By  means  of  its  agents,''  within  the  terms  of  its 
incorporation,^  it  can  transact  business  like  a  natural  person.^ 

It  has  certain  incidental  powers,  viz:  to  sue  and  be  sued; 
to  contract  obligations  concerning  personal  and  real  property 
according  to  the  powers  conferred  upon  it;  to  exercise  cer- 
tain political  powers,  and  to  make  by-laws  to  further  the  pur- 
poses of  its  incorporation,  provided  they  are  in  harmony  with 
the  provisions  of  its  charter  and  the  general  laws  of  the 
State.i*^  And  the  law  of  corporations  is  destined  to  become 
the  most  important  branch  of  our  municipal  laws. 

Tlie  common  law  gave  to  corporations  large  powers  and 
privileges,  but  with  the  multiplication  of  corporations  in 
modern  times,  it  became  necessary  to  have  the  existence  and 
operation  of  those  corporate  bodies  limited  and  curtailed  by 
laws  distinctly  defining  their  rights,  duties  and  liabilities,  and  it 
was  through  the  courts  invokingthe  preventative  and  remedial 
measures  of  the  law,  as  between  the  stockholder  and  the  cor- 

1,  IJouvier's  Law  Die,  p.  'Mu.  Ches.  and  Del.  Canal  Co.,  9  How.,  172. 

2,  People  r.  Assessors,  1  Hill.,  ()20.  7,  Anson  on  Cont.,  p.  113. 

3,  Dartnioutli.    College  r.    Woodward,   4       X,  .'i  Ohio,  205. 

Wheat.,  ()36.  9,  People  v.  Ass'rs,  fn(pra. 

4,  Shrewsbury.  &e.,  R.  Co.  v.  L.  &  G.  N.  R.        10,  Austin  r.  Murray,  If)  IMck.,  121;Ganitin 

Co.,  22  L.  .J.  Ch.,  f)82.  v.   Bradford,  1    Bibb.,    209;   ex  parte, 

5,  Balto.  r.  Balto.,  22  Md.,  50.  Burnett,  30  Ala.,  461. 

6,  Beatty  v.  Knowler,  4  Pet.,  l52;Perrine  t'. 


2  ULTRA  VIRES. 

poration  and  the  corporation  and  the  public,  that  the  doc- 
trine of  ultra  vires  was  introduced. 

It  is  an  example  of  judge-made  law ;  for  it  is  in  the  words 
of  no  statute,  nor  yet  is  it  found  in  the  old  common  law  of 
corporations.  It  is  a  principle,  than  which  there  is  none 
more  difficult  to  applj.^^ 

The  phrase  ultra  vires  was  used  by  a  writer  ^^  on  equity 
many  years  before  it  was  applied  to  the  law  of  corporations 
either  by  courts  of  equity  or  of  law.  In  its  modern  applica- 
tion it  means  beyond  the  "  authority  or  competency  "  of  a^^  cor- 
poration and  is  equivalent  to  ultra  licitum. 

It  has  no  reference  to  the  acts  of  a  corporation  contrary  to 
public  policy  and  illegal.^*  Illegality  has  a  totally  diiferent 
idea  embodied  in  it.^^  It  does  not  mean  that  the  coi-poration 
did  not  or  could  not  make  the  contract,  but  that  it  ought  not 
to  have  made  it,^^  and  that  the  act  was  unauthorized.!"^ 

The  doctrine  of  ultra  vires  is,  that  all  acts  of  a  corporation, 
not  within  the  powers  conferred  upon  it  by  its  charter,  or  the 
statutes  under  which  it  was  instituted,  or  reasonably  implied 
therefrom,  are  null  and  void,  and  as  to  such  acts  the  corpo- 
ration may  be  restrained  in  equitv'  by  an  injunction,  or  it 
may  set  up  the  plea  of  ultra  vires  as  a  defense  to  an  action 
at  law. 

It  may  be  thus  used  by  and  against  the  corporation.  The 
question  whether  a,  particular  act  is  ultra  vires  of  a  corpora- 
tion is  determined  by  a  construction  of  its  constating  instru- 
ments. K  the  act  is  prohibited,  or  against  public  policy,  it 
is  not  ultra  vires,  it  is  illegal. 

This  doctrine  is  supported  by  the  follovinng  reasons :  ^^ 
1st.  By  tolerating  ultra  vires  acts,  the  powers  of  corpora- 
tions would  be  extended  indefinitely,  and  might  jeopardize 
the  sovereign  power  which  created  them. 

2d.  By  allowing  the  corporation  to  embark  in  new  enter- 
prises, the  public  might  lose  its  expected  benefits  and  the 
stockholders  their  anticipated  profits. 

3d.  That  as  all  persons  are  presumed  to  know  the  extent  of 
the  powers  conferred  upon  a  corporation  by  its  charter,  a 
party  entering  into  a  contract,  not  within  those  powers,  should 
not  be  permitted  to  complain  that  such  contract  was  void. 

11,  Lord  Cairns  in  Riche's  case,  9  Ex.,  258       15,  Bissell  r.  M.  S.  &  N.  I.  R.  Co.,  22  N.  Y., 

12,  Lord  Kame's  Principles  of  Equity,  3d  258. 

Ed.,  p.  am.  If),  Parson's  Cont.,  vol.  1,  p.  142. 

13,  Nat.    Pemberton  Bank   v.  Potter,  125       17,  Whitney  Arms  v.  Barlow,  63  N.  Y.,  68. 

Mass.,  333  ;  Morawetz  on  Priv.  Corp.  18,  Field's  Ultra  Vires,  p.  58. 

14,  Rlche  V.  Ashbury  R.  Co.,  7  H.  L.,  653. 


ULTKA  VIRES.  8 

The  common  law  doctrine  of  corporate  power ,i^  together 
with  tlie  fact  that  corporations  possessing  extensive  powers 
were  only  recently  introduced  into  England,^  did  not  tend  to 
produce  such  a  principle  as  ultra  vires  there. 

It  was  in  the  United  States,  where  corporations  are  more 
numerous,-^  and  where  narrower  views  are  taken  of  their  ex- 
pressed and  implied  powers,--^  that  this  now  important  branch 
of  corporate  law  was  tirst  announced.  It  arose  through  the 
interpretation  of  the  powers  granted  to  a  corporation  by  its 
charter. 

The  early  view  of  the  courts  of  this  country  was  that  a 
corporation  was  non-existent  unless  for  the  purposes  for  which 
it  was  created,  and  that  an  act  not  within  the  scope  of  its 
charter  was  held  not  to  be  the  act  of  the  corporation,  and 
therefore  not  binding  upon  it.  This  view  was  based  upon 
the  limited  capacities  of  a  corporation,  and  was  discussed  as 
early  as  1804,  This  position  is  found  in  Head  r.  Providence 
Insurance  Company;  -^Peoi)le  r.Utica  Insurance  Company;-'* 
Fireman's  Insurance  Company  v.  Sturges.^-^ 

When  this  question  first  came  before  the  English  courts, 
in  1846,  they  adopted  the  American  view  as  to  the  limited 
capacities  of  corj)orations. 

It  was  held  by  Lord  Langdale,  in  Coleman  r.  Eastern 
Counties  Railway  Com]  )any,^  that  it  was  ultra  vires  for  a  rail- 
road company  to  establish  a  steam-packet  line  to  run  in 
connection  with  its  line ;  (also  in  Salomons  v.  Laing),-"  to 
increase  the  number  of  shares  ao^ainst  dissentino;  sharehold- 
ers,  saying  in  the  latter  case,  "  a  company  incorporated  by 
act  of  Parliament  is  bound  to  apply  all  the  money  and  prop- 
erty of  the  company  for  the  purposes  directed  and  pro\'ided 
by  the  act,  and  for  no  other  purpose  whatsoever."  It  was 
similarlv  maintained  by  Wi^ram,  V.  C.,^  Turner,  L.  J.,  '-'* 
and  Pollock,  L.  C.  B.^o 

But  the  leading  English  case  on  the  subject  of  ultra  vires 
is  East  Anglian  R.  Co.  v.  Eastern  Counties  R.  Co.^^     In  this 

19,  Case  of  Sutton's  Hospital,  10  Coke,  1.  "  the  Legislature  it  has  no  existence, 

20,  Coleman  r.  Eastern  Co.'s    R.  Co.,    10  "and  its  acts  are  neither  more  nor  less 

Beav.,  1.'  "than  a  mere  nullity." 

21,  Commonwealth  v.  Arrison,  15  S    &  R.,        26, 10  Beav.,  1. 

127.  27,    2  Beav..  339. 

22,  Dartmouth  Col.  r.  Woodward,  mipra.  28,  Bagshaw  r.    Ea.stern  Union  R.  Co.,  7 
2:^,  2  Cranoh,  n>6.  Hare,  114. 

24.  15  Johns,  :i5«  29,  Shrewsbury  R.  Co.  r.   L.  and  X.  W.  R. 

25,  2  Cowan,  (U:  to  the  same  effect,  see  Cos.,  siinra 

Strause  i:  Eagle  Ins.  Co.,  5  Ohio  St..        30,  Xational    Manure    Co.    v.    Donald   28 
60.     In  the  latter  the  court  said:  "That  L.  J.  Ex.,  188. 

"  beyond  the  limits  of  the  intention  of       31, 11  C.  B.,  775. 


4  ULTRA  VIRES. 

case  the  defendants  covenanted  to  pay  the  cost  of  preparing 
and  promoting  bills  in  Parliament,  and  the  action  was  to  re- 
cover such  cost.  Jervis,  C.  J.,  delivering  the  opinion  of  the 
court  said  :  "  It  is  clear  the  defendants  have  a  limited  author- 
"  ity  only,  and  are  a  corporation  only  for  the  purpose  of  mak- 
"  ing  and  maintaining  the  railway  sanctioned  by  the  act,  and 
"  that  their  funds  can  only  be  applied  for  the  purpose  directed 
"  and  provided  by  the  statute,  *  *  *  We  know  that  the 
"  statute  incorporating  the  defendant's  company,  gives  no 
"  authority  respecting  the  bills  promoted  by  the  plaintifi's,  * 
"  *  and  any  contract  relating  to  such  ])ills  *  *  *  jg  not 
"  Avithin  the  scope  of  the  authority  of  the  company  as  a  cor- 
"  poration,  and  is  therefore  void." 

Other  judges,  and  subsequently  Lord  Langdale,  held  that 
the  unauthorized  acts  of  a  corporation  were  not  only  void 
but  illegal.'^^ 

This  position  is  not  now  maintained,  unless  the  act  is  pro- 
hibited.^ Nevertheless,  the  English  courts,  in  the  early  c^es, 
went  farther  in  supporting  this  doctrine  of  ultra  vires,  and  in 
the  Attorney-G eneral  i'.  Great  Northern  R.  Co.,^  Kindersley, 
V.  C,  decided  that  a  charter  not  authorizing  an  act,  prohibited 
it. 

Substantially  the  same  thing  was  decided  in  MacGregor  v. 
Dover  &  Deal  R.  Co.^-^ 

This  extreme  view  was  not  long  sustained,  for  Baron  Parke, 
in  South  Yorkshire  Railway  and  River  Dunn  Company  v. 
Great  Northern  R.  Co.,^  held  an  act  was  not  ultra  vires  un- 
less it  appeared  "  by  express  provision  of  the  statute  creating 
"  the  corporation,  or  by  reasonable  inference  from  its  enact- 
"  ment  *  *  *  that  the  legislature  meant  that  such  a  deed 
"  should  not  be  done."  And  in  the  Eastern  Counties  R.  Co. 
V.  Hawkes,^'  this  question  was  carried  to  the  House  of  Lords, 
and  it  was  conceded  that  a  matter  not  authorized  by  the  char- 
ter, but  collateral  and 'within  the  purview  of  it,  is  not  idtra 
vires.  Lord  St.  Leonards  said :  "  He  felt  a  disposition  to  re- 
"  strain  the  doctrine  of  idtra  vires  to  clear  cases  of  excess  of 
"  power,  wdth  the  knowledge  of  the  other  party  expressed  or 
"  implied   from  the  nature  of  the  corporation  and  of  the 

32,  Coleman  r.  Eastern  Cos.  R.  Co..  supra;  33,  Riche  r.  Ashbury  R.  Co.,  supra;  also 
Cohen  V.  Wilkinson,  13  Jurist,    641 ;  City  of  Memphis  v.  Memphis  Gas  Co., 

Salomons  )'.  Laing,  supra:  Lord  Cran-  9  Hcisk,  543. 

worth  held  the  same  View  in  Beman  34,  6  Jurist,  1006. 

V.  Ruflford,  6  Eng.  L  and  Eq.   R.,  106;  35,  18  Q.  B.,  618. 

also  Parker  J.,  in  Winch  v.   B.   L.  and  36,  9  Ex.,  55,  22  L.  J.  Ex.  304. 

C.  Junction   R.  Co.,  13  Eng.  L.  and  37,  H.  L.  C,  331. 
Eq.,  506. 


ULTRA  VIRES.  5 

"  contract  entered  into."  In  this  case  it  was  finally  deci<k'(l 
that  a  contract  clearly  ultra  vires  was  only  void. 

The  courts  in  the  rapid  growth  of  the  doctrine  of 
ultra  vires  did  not  consistently  adhere  to  the  position  of 
the  limited  capacities  of  corporations,  for  they  soon  de- 
cided a  corporation  was  liable  for  torts,-"^  hut  if  a  corpo- 
ration was  non-existent  for  every  purpose,  except  for  such 
as  it  was  authorized  by  its  charter,  and  no  charter  authorized 
the  commission  of  a  tort,  how  could  it  logically  be  re- 
sponsible for  it.  And  further,  the  position  most  of  these 
earlier  cases  took  upon  the  subject,  was  plainly  in  conflict 
with  the  common  law  of  corporations,  as  found  in  the  case 
of  Sutton's  Hospital.^^^  It  is  there  held  that  the  capacity  of 
a  corporation  after  it  has  once  been  created,  to  enter  into  a 
given  contract,  is  in  the  nature  of  things,  its  capacity  ^^^thout 
reference  to  the  manner  of  its  creation.  This  case  seems  to 
have  been  lost  sight  of  for  many  years,  but  in  Riche  v.  Ash- 
bury  Railroad  Co.,"*"  Blackburn,  J.,  cited  the  case,  and  re- 
xdewed  the  common  law  of  corporations,  and  decided  that 
whatever  was  not  prohibited^  might  be  made  binding  under 
certain  circumstances,  and  that  corporations  have  by  impli- 
cation all  capacities  and  powers,  which  being  reasonably  in- 
cidental to  their  operation,  are  not  forbidden,  although  if  an 
act  was  'prohibited,  it  never  could  be  enforced  and  was  illegal. 

This  latter  view  is  more  consistent  with  the  action  of  courts 
concerning  corporate  powers  and  privileges,  and  as  Justice 
Miller  said  in  Thomas  v.  Railroad,^^  represents  the  decided 
preponderance  of  authority,  both  in  this  country  and  at 
present  in  England. 

The  foreo-oino;  on  ves  a  brief  historv  of  the  doctrine.  Xow 
it  shall  be  the  aim  of  the  writer,  not  to  treat  the  doctrine  of 
ultra  vires  in  its  every  phase,  as  laid  down  in  the  books  and 
the  opinions  of  the  courts,  for  that  could  not  be  brought  with- 
in the  compass  of  an  essay,  but  from  actual  circumstances, 
under  \\^ich  in  various  cases  it  was  or  was  not  maintained, 
to  show  the  position  of  the  courts  upon  this  doctrine  and  its 
force  to-day. 

Whether  an  act  is  idtra  vires  of  a  corporation  can  only  be 
known  by  an  examination  of  its  charter,  The  charter  of  a 
corporation  is  the  constitution  of  its  being,  the  measure  of  its 

38,  Green's  Brice's  Ultra  Vires,  pp.  :>?0-:?6.x  Brian,  C.  J.  Coke  said:  "Divers  clauses 

39, 10  Coke,  oO.    Lord  Coke  holding  that  "  in  their  charters  B.Te:  not  of  necessity, 

"  when  a  corporation  is  duly  created  "but  only  c/fc/nrriton/,  and  well  might 

"  all  other  incidents  are  tac'ite  annex-  "  have  been  left  out." 

"ed,"  citing  1  Roll,    513;  Vin.  Arb.  40,  Supra. 

Corp.  G.  Com.  Dig.    In  22  E.  4  Grant,  41, 101  U.  S.,  71. 


6  ULTRA  VIRES. 

authority,  powers  tind  liability,^-  and  tlie  courts  instead  of 
holding  that  it  has  no  powers  except  such  as  are  expressly 
conferred,  now  hold  that  it  has  such  incidental  powers  as  are 
necessary  to  enforce  those  expressly  granted,^-''  and  that  a  rea- 
sonable construction  nmst  be  put  upon  the  latter.^^  (Questions 
of  ultra  vires  relating  to  tlie  express  powers  of  corporations, 
are  decided  by  a  strict  construction  of  its  charter,  while  such 
as  concern  its  implied  powers,  are  decided  by  a  comparison  of 
numerous  decisions  and  dicta.^  Acts  of  corporations  may 
now  be  ultra  rires  in  a  primary  and  secondary  sense.^^'  In  a 
primary  sense,  it  refers  to  acts  which  are  not  within  the  scope 
of  the  powers  of  the  corporation  to  perform  under  any  circum- 
stances. 

In  the  secomlury  sense,  it  refers  to  acts  that  might  be  per- 
formed for  certain  purposes,  or  ^\^th  the  consent  of  certain 
parties,  but  which  have  not  thus  been  })erformed. 

In  the  former  the  public  is  concerned.  In  the  latter  it  is  a 
question  between  the  corporation  and  its  stockholders,  or 
between  third  persons  and  it  or  the  stockholders,^'^ 

In  the  one  case  the  act8  are  absolutely  void  and  cannot  be 
ratiiied.^*  In  the  other  they  may  be  affected  by  the  conduct 
of  the  stockholders.^*' 

The  general  rule,  as  to  contracts  of  a  corporation  clearly 
proved  ultra  vires,  was  laid  down  by  Chief  Justice  Jers'is,* 
viz :  that  a  corporation  is  not  estopped  fi'om  setting  up  the 
plea  of  ultra  vires  to  defeat  an  action  upon  a  contract.  This 
was  cited,5'  recognized,^-  and  approved  "^  in  England,  and  it 
has  been  followed  frecpiently  in  this  country,^  though  some 
courts  have  souo^ht  to  relieve  ag^ainst  it.^ 

This  interpretation  of  the  doctrine  of  ultra  vires  enabled 
corporations  to  repudiate  their  contracts,  even  though  they 
nuiy  have  received  the  whole  benefit  of  such  contracts,  and  it 
enabled  them,  whenever  their  undertakings  proved  unsuc- 

42,  Thomas  r.  R.  R.,  mpra.  52,  Mcfiregor  i:  D.  &  D.  R.*Co.,  supra. 

43,  Dartmouth  Col.  v.  Woodward,  supra:  53,  By  Lord  Cairns  in  Ashburj- Co..  SHprn 
Bank  of  Augusta  r.  Earl,  13  Pet.,  519.  oi,  Penn.  and  Del.,  &c.,  Co.  r.  Dandridge, 

44,  Purvine  »•.  Ches.,  &f..  Canal,  supra.  8  Gill  and  J.,  248;  Downing  r.   Mount 

45,  Green's  Brice's  I'ltra  Vires,  p.  64.  Washington  R.    Co.,    40'   X.    H..  230; 

46,  Miners'  Ditch  Co.  i'.  Zellerback,  37  Cal.,  Pierce  r.  Madi.son.  &c.,  R.  Co.,  21  How., 

543;  McPherson  r.  Forster,  43  Iowa,  48.  440:  Zabri.skie  c.   C.  and  C.   R.  Co.,  23 

47,  Kent  r.    Quicksilver    Mining  Co.,  12  id.,  381;  Hood  v.  N.   Y.   and   N.   H.  R. 

Hun.,  .53;  Hoyt  r.  same,  17  Hun.,  169.  Co.,  22  Conn.,  ."i()2;  Buffet   r    Troy  & 

48,  Riche  r.  Ashburj-,  supra.  Bos.  R  Co.,  40  X.  Y.,  168. 

49,  Kmpire  Trans.  Co.  r.  Blanchard,  31  55,  Shrewsburj-  and  B.  R  Cx).  v.  N  W  R. 
Ohio  St..  6.50;  Sanderson  v.  .Etna  Iron  Co  ,  6  H.  L.  C,  113;  Bissell  v.  M  S.  and 
and  Xail  Co.,  8  Cent.,  L.  J.,  266.  X.  I.  R.  R.  Co..  mtpra:  Brown   r.  Win- 

50,  East  Anglian  Railway  Co.   v.   Eastern  nisscmmet  Co.,  11  Allen,  326;  Miners* 

Cos.  R.  Co.,  supra.  Ditch  Co.  c.  Zellerbacker,  supra. 

51,  Eastern  Cos,  r.  Hawks,  supra. 


ULTRA  VIRES.  7 

cessful,  to  take  advantage  of  their  own  wrong,  and  defraud 
those  dealing  with  them  in  good  faith. 

The  plea  of  ultra  vires  worked  hardships  and  injustice 
hardly  paralleled  in  the  whole  volume  of  the  law.  For  though 
a  party  proceeded  in  the  performance  of  a  contract,  expend- 
ing his  lahor  and  money  in  the  production  of  values, 
which  the  corporation  appropriated,  and  at  the  same  time 
the  contract  was  beyond  the  scope  of  its  power,  it  could  in- 
terpose the  plea  of  ultra  vires  as  a  perfect  defense  to  an  action 
to  recover  for  the  labor  and  money  expended. 

For  example,  take  the  illustration  used  by  Chief  Justice 
Lawrence  in  Bradley  v.  Ballard,"^  and  carry  it  a  little  further 
than  he  does,  and  the  great  fraud  this  doctrine  of  ultra  oires 
will  permit  becomes  apparent. 

A  corporation  is  chartered  to  construct  a  railroad  from 
Chicago  to  Rock  Island.  In  this  charter  no  powers  would 
be  given  the  company  to  build  or  purchase  steamboats  for 
the  purpose  of  running  on  the  Mississippi  River  from  Rock 
Island  to  St.  Louis.  But  suppose  at  a  regular  meeting  of  the 
stockholders,  by  vote,  the  directors  should  be  authorized  to 
make  a  contract  for  building  two  steamboats.  The  contract 
is  let,  and  the  contractors  receive  one-third  in  cash  and  the 
company's  notes  for  the  remainder.  The  boats  are  completed 
and  accepted  by  the  company,  and  by  it  insured  for  their  full 
value.  The  boats  are  burned,  and  the  company  collects  the 
full  risk  from  the  insurance  company,  and  when  the  notes  are 
due,  to  the  demand  for  payment,  they  set  up  the  defense  that 
they  exceeded  their  corporate  powers  in  contracting  to  have 
the  boats  built  and  that  therefore  they  are  not  responsible  on 
the  notes,  and  as  the  contract  was  beyond  the  scope  of  the 
powers  granted,  and  the  legislature  did  not  intend  contracts  •^'^ 
of  that  nature  should  be  made,  such  defense  would  be 
good.  Or  suppose  the  insurance  company  ha^^.ng  received 
their  premiums,  should  refuse  to  pay  the  insurance,  or,  if  the 
boats  are  not  burned,  that  the  contractor  should  sue  to  re- 
cover the  boats,  when  he  had  received  full  pay.  What  Avould 
there  be  to  compel  the  boat  company  or  the  insurance  com- 
pany to  make  payment,  or  to  prevent  the  contractor  from  recov- 
ering the  boats,  since  the  law  held  the  contract  by  which  they 
were  insured  and  built  void?  And  yet,  this  would  be  in  ac- 
cordance with  the  early  decisions. 

56,  55  111.,  413.  Pa.,  &c.,  Steam  Nav.  Co.  v  Dandridge, 

57,  Bateman  v.  Ash  ton.    Under  Lvne,  3  mpra;  So.  Yorkshire,  &c.,  R.  Co.  r.  G. 

H.  and  N.,  223:  Norwich  v.  Norfolk  R.  N.  R.  Co  ,  9  Ex.,  55;  Hood  r.  N.  Y.  and 

Co.,  4  El.  and  B  ,  397;  Hawks  r.  Eastern  N.  H.,  mpra;  Pierce  v,  Madison,  &c,, 

Cos.  R.  Co.,  1  Del.,  M.,  and  G.,  737;  R.  R.  Co..  supra, 


8  ULTRA  VIRES. 

But  the  hardships  of  this  technical  doctrine  of  ultra  cires 
has  frequently  heen  spoken  against  by  judges.  In  the 
Mayor  of  Xorwich  /;.  Norfolk,'''*  Lord  8t.  Leonards  character- 
ized it  as  "«/i  indecent  doctrine"  that  covenants  entered  into 
wilfully  and  with  fair  intentions  l)y  both  parties  should  be 
resisted  on  the  ground  of  ultra  vires. 

In  Gary  c.  Cleveland,  &c.,  R,  Co.^^  the  court  said  :  "  The 
"  plea  is  not  a  gracious  one,  that  a  contract,  which  they  have 
"  deliberately  made  and  of  which  they  have  received  the  full 
"  benefit,  is  void  for  want  of  power  in  them  to  make  it." 

In  Converse  v.   Norwich    Co., ^  the  court   said:  "Courts 
"  have  gradually  come  to  think  it  necessary  to  relax  the  tech-  ■ 
"  nical  and  theoretical  strictness  of  the  legal  principles  ap- 
"  plicable  to  them,  and  subject  them  to  the  same  liabilities 
"  for  the  acts  of  their  agents  as  natural  persons,  so  far  as  it 
"  can  be  done  practically  and  consistently  with  their  charters. 
a  *     *     *     And  the  tendency  of  the  courts  is  almost  uni- 
"  versally  to  recognize  their  powers  so  to  do,  where  the  pur- 
"  pose  is  auxiliary,  beneficial,  and  within  a  reasonable  limit, 
"  as  an  intended,  or  necessary  and  incidental  power  by  a 
"  liberal  construction  of  the  legislative   grant."     And    the 
opinion   of  Bigelow,  C.  J.,  in  Brown   v.  Winnissemmet,^i 
which  in  this  whole  doctrine  of  ultra  vires  stands  midA^•ay 
between  Lord  Langdale*^^  and  Justice  Blackburn,^^  argues 
for  a  liberal  construction.     The  learned  judge  said :  "  We 
"  know  no  principle  by  which  an  act  creating  a  corporation 
"  for  certain  specific  objects,  or  to  carry  on  a  particular  trade 
"  or  business  is  to  be  strictly  construed  as  prohibitory  of  all 
"  other  dealings  or  transactions  not  coming  within  the  exact 
"  scope  of  those  designated.     Undoubtedly  the  main  busi- 
"  ness  of  a  corporation  is  to  be  confined  to  that   class   of 
"  operations  which  properly  appertains  to  the  general  pur- 
"  poses  for  which  its  charter  was  granted.     But  it  may  also 
"  enter  into  contracts  and  engage  in  transactions  which  are 
"  incidental  or  auxiliarj-  to  its  main  business,  or  which  may 
"  become  necessary,  expedient  or  profitable  in  the  care  and 
"  management  of  the  property  which  it  is  authorized  to  hold 
"  under  the  act  by  which  it  was  created." 

The  safety  of  men  in  their  daih'  dealings  requires  that 
this  doctrine  should  be  confined  in  narrow  bounds,  and  the 
foregoing   authorities   evidence  on  the  part   of  the   courts, 

58,  Su]yra.  61,  Supra. 

59,  26  Barb.,  35.  62,  Coleman  r.  Eastern  Cos.  R.  Co.,  supra. 

60,  33  Conn.,  166.  63,  Riche's  Cases,  supra. 


ULTRA.  VIRES.  9 

a  disfavor  for  the  doctrine  and  an  inclination  to  relieve  inno- 
cent parties  from  the  hardships  resulting  from  its  technical- 
ities as  applied  by  private  corporations. 

The  relief  has  been  ffiven  concerning  an  act  ultra  vires  in 
the  primary  sense — 

1st.  By  a  liberal  construction  of  J  the  consulting  instru- 
ments, so  as  to  take  away  the  very  foundation  of  the  defense. 

2d.  By  allowing  a  recovery  for  the  labor  performed, 
or  of  the  money  paid. 

And  concerning  acts  ultra  vires  in  the  secondary  sense,  by 
applying  the  doctrine  of  estoppel  in  'pais  to  exclude  the  de- 
fense— 

1st.  Wliere  the  stockholders  have  ratified  or  acquiesced  in 
the  proceeding. 

2d.  Where  the  contract  has  beefl  executed  or  partly  exe- 
cuted on  either  side. 

3d.  In  special  cases. 

First.  The  eifect  of  the  plea  of  ultra  vires  destroyed  by  a  lib- 
eral construction  of  the  constating  instruments. 

And  though  it  is  well  settled  in  Zabriskie  v.  Hackensack 
&  Xew  York  R.  Co.,^  that  the  business  of  a  corporation  can- 
not be  changed,  or  abandoned  or  sold  out  without  the  con- 
sent of  all  the  corporators,  and  that  the  interests  shall  be 
used  to  accomplish  the  object  for  which  the  corporation  has 
been  created,  yet  many  acts,  which,  according  to  the  early 
cases^  would  plainly  be  ultra  vires  and  void,  have  thus  been 
decided  within  the  incidental  powers  of  the  corporation,  and 
the  plea  has  been  held  inadmissible. 

Accordingly  in  Forest  v.  Manchester  R.  Co.,^it  was  deci- 
ded that  a  railroad  company  which  was  authorized  to  keep 
steamboats  for  purposes  of  a  ferry  in  connection  with  their 
line,  could  use  the  boats  for  excursion  trips,  when  unemployed 
in  conveying  over  persons  who  wished  to  use  the  ferry,  and 
that  such  was  not  ultra  vires. 

And  a  stage  coach  company,  or  street  railway,  would  not 
be  acting  ultra  vires  if  it  should  enter  into  a  contract,  that  its 
horses  might  be  employed  in  another  occupation,  or  should 
let  a  coach  or  car  to  another  person  when  not  needed  by  the 
corporation.^' 

And  in  Simpson  v.  Westminster  Palace  Hotel  Co.,^  where 
the  directors  of  a  company,  organized  for  the  purpose  of 

64,  3  C.  E.  Greene,  78.  66,  30  Beav.,  40. 

65,  East  Anglian  R.  Co.  v.  Eastern  Cos.  R.       67,  Brown  v.  Winnissemmet,  mpra. 

Co.,  mpra.  68,  H.  L.  C,  12. 


10  ULTRA  VIRES. 

building  a  hotel  and  doing  everything  necessary  to  attain 
that  object,  without  the  consent  of  all  the  shareholders  leased 
part  of  the  building  for  another  purpose,  and  thereby  entailed 
expenses  on  the  company  before  and  after  the  lease,  it  was 
held  not  ultra  vires. 

According  to  the  strict  construction  of  the  charter  of  a  cor- 
poration, it  was  ultra  vires  and  void  for  corporate  carriers  to 
contract  to  carry  beyond  the  terminii  of  their  line,  and  was 
so  decided  in  England,'"'^  and  in  the  United  States,  in  Hood  v. 
New  York  and  jS^ew  Ilaven  R.  Co.,™  and  was  sustained, ''M3ut 
the  law  is  now  settled  in  Ogdensburg  and  Lake  Champlain 
R.  Co.,  Z7.  Piatt,'- that  such  contract  is  not  ultra  vires,  ex  en 
though  the  charter  has  no  express  provision  authorizing  it, 
whether  the  distance  is  by  sea  '^  or  land.'^  But  a  railroad 
cannot  buy  a  steamboat  to  run  in  connection  with  its  line,''' 
though  it  can  put  up  stations,  '^  restaurant  rooms,  '^^  a  telegraph 
along  its  line,''^  coal  depots,''^  and  even  operate  a  coal  mine  for 
the  special  supply  of  the  road.^  And  a  coi-poration  created 
to  mine  and  transport  coal  has  authority  to  buy  steamboats 
to  deliver  it  ;^^  to  mortgage  its  property  unless  it  is  restrained 
in  this  respect.^2 

So  it  is  not  ultra  vires  for  a  corporation  to  carry  on  part  of 
its  business,^  unless  it  is  one  indivisible  project,^  nor  to 
waive  the  benefit  of  a  stipulation  introduced  for  its  own  bene- 
fit, when  to  enforce  it  would  in  the  end  be  detrimental  to 
itself  and  the  lucrative  prosecution  of  its  business.*^ 

And  it  has  been  held  that  a  corporation  may  issue  nego- 
tiable instruments,  though  in  Bateman  v.  ^Mid- Wales  R.  Co.^ 
it  was  maintained  that  if  no  special  power  existed  to  issue 

9,  Caledonia  and  D  Junction  R.  Co.  r.  H.  39;  Bard  v.  Poole,  12  X.  Y.,  (2  Kern), 

H  Trustees,  39  E.  L.  and  Eq.R.,  28.  495;  Quiraby  r.  Vanderbilt,   71   N.  Y., 

70,  22Conn.,  5()2.  am. 

71,  Converse  r  X.  and  X.  Y.  Trans.  Co..  33  75,  Pierce  v.  M.  &c.,  R.  Co.,  supra;  Hoag- 

Conn..  166;  Xagatuck  R.  Co.  r.  Water-  land  c.  H.  aud  St.  Joseph  R.   Co.,   39 

bury  B.  Co.,  24  Conn.,  468.  Mo.,  4.51. 

72,  22  Wall,  1>3.  76,  Cochin  t:  Midland  R.  Co.,  2  Ph.,  469. 

73,  Wilby  r.  W.  Cornwall  R,  Co.,  2  H.  and  77,  Flanagan  v.  G.  and  W.  R.  Co.,  L.  R.,  7 
X.,  703;  Blake  r.G.   W.   R.  Co.,   7  id.,  Eq.,  116. 

987;  Muschamp  r.    L.    and  P.    June-  78,  Wt.  Union  Tel.  Co.  i'.  Riche,  19  Kan., 

tion  R.  Co..  8  M.  and  \V.,  421;  Xoyes  v.  517. 

R.  and  B.  R.  Co.,  27  Vt.,  110.  79,  East  and  W.  R.  Co.  r.  Dawes,  11  Hun., 

74,  Carj-,  r.  C.   and  T.  R.  Co.,  29  Barb.,  35:  :363. 

Bissel    V.    M.  S.  &c.    R.    Co.,    gupra;  80,  Lvder.  Eastern  B.  R.  R.  Co.,  36  Beav., 

Buffet  V.  T  and  B.  R.  Co.,  supra;  Root  10  and  16. 

V.  Great  Western  R.  Co.,  45  X.  Y.,  524;  81,  Callowav  r.  Clarke,  32  Mo..  305. 

Burtis  r  Buffalo  &c  ,  R.  Co.,  4  X.  Y.,  82,  Aurora  Agricultural  Soc.  v.  Paddock, 

269;    Hill    M'fg    Co.    r.    Boston  &c.,  80  111.,  %3. 

R.  Co.,  1(U  Mass.,  122;  Feital  v.  Middle-  83,  Xorwegian  T.  Iron  Co.,  35  Beav.,  223; 

sex  R.   Co.,  209  Mass.,  398;  Morse  v.  Moss  r.  Averill,  10  X.  Y.,  449. 

Brainard,  41  Mass.,  550;  R.  R.   Co.  r.  84,  Cohen  r.  Wilkinson,  supra. 

Trans.  Co.,  16  Wall.,  324;  Weed  r.  S.  85,  Taunton  t-.  Royal  Ins.  Co.,  2  H.&X.,  135, 

and  S.   Co.,  19   Wend.,  534;    Hort  v.  86,  L.  R..  1  C.  P.,  499. 

Benesselaer  and  S.  S.  R.  Co.,  4  (Seld), 


ULTRA  VIRES.  11 

notes  and  bills,  that  such  would  be  ultra  vires  and  the  com- 
pany would  not  be  liable  thereon.  This  was  upon  the  ground 
that  it  would  be  contrary  to  the  law  governing  negotiable  pajier 
to  allow  an  inquiry  to  be  gone  into  between  the  company 
and  the  bona  fide  holder  for  value,  without  notice,  as  to 
whether  the  bill  was  issued  for  a  legitimate  purpose  or  not. 
But  it  is  now  well  settled  that  a  corporation  not  prohibited 
by  law  fi'om  doing  so,  and  without  any  express  power  in  its 
charter  for  the  purpose,  may  issue  negotiable  paper,  provided 
it  were  given  for  any  legitimate  purpose  for  which  the  cor- 
poration was  created.*^'^ 

Thus  a  corporation,  chartered  to  erect  a  monument,  is 
liable  upon  a  bill  properly  accepted  in  pursuance  thereof;*^ 
or  a  corporation  to  build  a  bridge  is  liable  on  its  notes  for 
labor  and  material  ;^^  or  a  railroad  corporation  is  liable  on  its 
notes  for  material  to  be  used  in  its  construction  ;^  but  if  tlie 
notes  were  acce])ted  for  accommodation  of  another  company 
in  constructing  its  road,  it  would  l)e  ultra  vires. ^^ 

Thus  by  a  liberal  construction,  it  is  incidental  to  any  cor- 
poration to  borrow  money  to  carry  on  its  business.^  And 
according  to  Selden,  J.,  inBissell's  case,  if  a  corporation  was 
authorized  to  issue  negotiable  paper  for  any  purpose,  it  could 
not  set  up  the  plea  of  ultra  vires  because  it  was  issued  for  an- 
other purpose  than  that  authorized.^^  In  the  case  of  Monu- 
ment Is^ational  Bank,*^  Hoar,  J.,  in  reference  to  the  abuse  of 
that  power  said :  "  The  abuse  not  being  known  to  the  other 
"  contracting  party,  the  doctrine  of  ultra  vires  does  not  apply." 

It  would  be  ultra  vires  of  a  manufacturing  corporation  to 
give  its  note  for  shares  in  a  bank,^''  or  purchase,  hold  or  deal 
in  the  stock  of  another  corporation,  unless  expressly  author- 
ized by  law.^  Even  if  the  note  of  a  municipal  corporation  is 
in  the  hands  of  a  bona  fide  holder  for  value  without  notice, 
and  there  is  nothing  upon  the  face  of  the  instrument  to 
indicate  that  it  was  made  ultra  vires,  that  defense  could  not 

87,  Moss  V.  Averill,  mpra;  Mott  r.  Hicks,  88,  Hayward  r.  Pilgrim  Soc.,  21  Pick.,  270; 
1  Cowan,  513;  Moss  r.   Oakley,  2  Hill,  Davis  c.  Bldg.  Union,  ;?3  Md..  2!S5. 

205:  Moss  V.  Rossie  Lead  Mining  Co.,  89,  Barry  v.  Mechanics  E.  Co.,  1    Sand. 
5  Hill,  137;  Police  Jupa"  r.   Britton,   15  Ch.,  280. 

Wall.,  566;  Alcott  r.   Tioga   R.   Co.,  40  90,  Hamilton  ?'.  R.  R.  Co.,  9  Ind..  .358. 

Barb.,  179;  Clark   r.   Fanners'  Woolen  91,  Smead  v.  R.  R.  Co.,  mtpra. 

M'f  g  Co.,  15  Wend..  256;  Richmond  R.  92,  Field  on  Corp.,  p.  249. 

Co.  V.  Smead,  19  Grat.,  3.58;  Smith  ;'.  93,  Supra:  also  Supervisor   v.  Schenck,  5 
Eureka  Flour  Mills.  (">  Cal.,  1:  Union  Wallace,  772;  also  Gelpcher.  Dubuque, 

Bank  i:  Jacobs,   6  Humph..  515;  Rock-  1  Wall.,  175. 

well  r.   Elkhorn  Bunk,  13  Wis..  (ViS:  94, 101  Mass.,  57. 

Hardv  v.    Merri wether,  14  Ind.,  203;  95.  Sumner  r.  Marcy,  3  W.  and  M.,  105. 

Clark  V.  School  Dist.  No.  7,  3  R.  1.,  199;  96,  Green's  Brice,  p.  95  n.;  Franklin  Co.  v. 
Lucas  I".  Pitney,  3  Dutch,  221;  Oxford  Lewiston  Bank,  68  Me.,  43. 

Iron  Co.  1'.  Spradley,  46  Ala.,  88;  Brad- 
ley, V.  Ballard,  supra. 


12  ULTRA  VIRES. 

be  maintained,^  though  if  it  were  not  held  bona  fide  it  could 
not  be  enforced.^^  It  would  not  be  incidental  to  the  powers 
of  a  private  corporation  to  assume  the  debt  of  another  corpo- 
ration and  issue  notes  in  payment  thereof;^  nor  to  engage  as 
surety  for  the  business  of  another  corporation  in  which  it  had 
no  interest  ;^*^  nor  incidental  to  the  powers  of  a  national  bank- 
ing corporation  to  procure  the  indorsement  and  discounting 
of  a  note  or  bill,  when  it  has  no  interest  therein  •,^^^  nor  to 
purchase  promissory  notes  for  speculation.^o"- 

But  a  national  bank  nlay  take  a  mortgage  to  secure  an 
existing  indebtedness,^*'^  though  for  a  future  loan  it  would  be 
illegal,^*^  and* it  may  take  an  assignment  of  a  note  secured  by 
a  trust  deed  upon  real  estate.^*^ 

The  foregoing  applies  to  private  corporations.  A  different 
rule  obtains  as  to  municipal  corporations.  "  Dillon  on  Muni- 
cipal Corporations"^*^  states  it  as  follows:  "The  general 
"  principle  of  law  is  settled  that  the  agents,  officers  or  even 
"city  council  of  a  municipal  corporation  cannot  bind  the 
"  corporation  by  any  contract  which  is  beyond  the  scope  of 
"its  powers.  *  *  *  It  results  from  this  doctrine  that  un- 
"  authorized  contracts  are  void,  and  in  actions  thereon  the  cor- 
"  poration  may  successfully  interpose  the  plea  of  ultra  vires. 
"  *  *  *  K  the  act  complained  of  lies  wholly  outside  the 
"general  or  special  powers  of  the  corporation,  as  conferred  in 
"  its  charter  or  by  statute,  the  corporation  can  in  no  event  be 
"  liable,  whether  it  directly  command  the  performance  of  the 
"  act,  or  whether  it  be  done  by  its  officers  without  its  express 
"command."!*'^ 

The  reasons  being  that  such  corporations  are  never  organ- 
ized for  gain  and  the  courts  will  not  presume  assent  of  their 
membei-s,!*^  or  that  it  is  incidental  to  its  powers.  According- 
ly it  is  ultra  vires  of  a  municipal  corporation  for  a  city  council 
to  pass  a  resolution  to  give  a  public  entertainment  and  to  pay 

97,  Comr's  of  Knox  Co.  r.  Aspinwall,  21       104,  Crocker  n.  Whitney,  71  N.  Y.,  161. 

How.,  539;  Citv  of  Lexington  v.  Butler,  105,  Fridley  v.  Brown,  87  Ills.,  151. 

14  Wall.,  282:  Allegheny  City  r.   Me-  106,  ^  381 

Clurkan,  14  Pa  St.,  81;  Devoss  v.  Rich-  107,  Dillon  Munc.  Corp.,  g  766.    Adifferent 

mond,  18  Grat.,  338.  view  was  taken  in  Allegheny  City  w. 

98,  Franklin  Co.  t.  Lewiston  Savings  Inst.,  McClurkan,    Coutler,    J.,    holding   it 
supra.  would  be  liable,  if  there  had  been  no 

99,  State  Bank  v.  U.  S.  Pottery,  34  Vt.,  144.  objection  until  the  right  of  third  per- 

100,  Central  Bank  v.  Emp.  Stone  Dressing  sons  had  attached:  also  Argenti  r.  City 
Co.,  26  Barb.,  23.  of  San  Francisco,  16  Cal.,  iVi.but  Cope, 

101,  Bank  of  Genesee  v.  Patcher  Bank,  19  J.,  overruled  this  case  in  20  Cal.,   296, 
N.  Y.,  312.  and  an  adveree  view  was  held  also  in 

102, 1st  Nat.  Bank  ti.  Pierson,  24  Minn.,  140.  Cheenev  v.  Inhabitants  of  Brooktield, 

103,  Woods  r.  People's  Nat.   Bank,  83  Pa.  60  Mo.,  53. 

St.  57;  Mechanics'  Nat.  Bank  v.  Means,        108,  Bradley  v.  Ballard,  supra. 

10  Chicago  L.  X.,  180;  Upton  v.  Xat. 

Bank  of  Reading,  120  Mass.,  153. 


ULTRA  VIRES.  13 

for  the  same  from  the  city  treasury  ;io9  fQj.  ^  mayor  and  city 
council  to  oft'er  a  reward  for  the  arrest  of  a  murderer  ;^^'^  to 
employ  counsel  to  aid  in  tlie  criminal  prosecution  of  persons 
lately  officers  of  the  city  for  misconduct  while  in  office  ;i^i  to 
endow  a  place  of  worship  at  the  borrower's  expense  ;^^'  to  give 
compensation  for  an  office  abolished.ii-^  And  bonds,  issued 
in  excess  of  corporate  power  are  not  enforcible  by  ^^^  or 
against  1^5  the  corporation,  and  warrants,  issued  without  ex- 
.  press  authority,  are  void  in  the  hands  of  innocent  holders,  i^*^ 
Thus  it  seems  that  the  rule  is  very  strict  against  the  validity 
of  ultra  vires  acts  in  the  primary  sense  of  a  municipal  corpo- 
ration.ii'  The  courts  have  not  felt  constrained  to  extend 
their  powers,  as  in  private  corporations,  and  in  these  latter 
the  liberal  construction  has  aided  justice  and  in  a  measure 
destroyed  the  etfect  of  the  plea  of  ultra  tires. 

Second.  The  courts  have  relieved  against  this  doctrine,  by  al- 
lowing a  recovery  of  the  money  or  values  produced,  although 
the  contract  was  ultra  vires  and  void. 

This  is  especially  true  in  England,  for  her  courts  have  held 
so  firmly  to  the  doctrine  of  ultra  vires,  that  even  though  a 
contract  of  a  private  corporation  be  executed,  it  cannot  be  en- 
forced. ^^^  This  is  the  accepted  method  by  which  relief  is  ob- 
tained there.  But  in  this  country  this  principle  is  applied 
frequently  in  cases  of  municipal  corporations,  for  the  courts 
will  not  enforce  such  a  contract  against  a  municipal  corpora- 
tion. It  is  solid  law,  that  such  a  recovery  cannot  be  had  in 
case  of  private  corporations  on  such  an  ultra  vires  contract,  be- 
cause the  stockholders  and  public  may  be  thereby  prejudiced 
and  the  corporation  rendered  unable  to  perform  its  duties, 
yet  a  recovery  may  be  had  for  the  consideration  advanced  in 
the  proper  action  for  money  paid,  labor  done,  or  property 
delivered.  It  may  repudiate  the  transaction  if  it  chooses,  but 
it  must  repudiate  it  altogether.  "  It  cannot  reprobate  and 
yet  approbate."  To  say  that  it  cannot  be  sued  upon  an  ultra 
vires  contract  is  one  thing,  but  to  say  it  may  retain  the  pro- 
ceeds that  have  fallen  into  its  hands  through  such  contract  is 
something  so  different  that  the  latter  shocks  one's  sense  of 
right.     And  in  such  dealings  the  law  raises  an  implied  agree- 

109,  Austin  V.  Coggshall,  12  R.  I.,  329.  114,  City  of  Montgomery  v.  M.  and  W.  Rl. 

110,  Hanger   ti.    City   of  Des   Moines,  52  Road  Co.,  31  Ala.,  76. 

Iowa.  193.  115,  McPherson  v.  Foster,  43  Iowa,  48. 

111,  Butler  ('.  Milwaukee,  15  Wis.,  493.  116,  Clarke  v.  Des  Moines,  19  Iowa,  199. 

112,  Attv.  Gen'l  V.  Aspinwall.  2  My.  and  117,  Mayor  v.  Ray,  19  Wallace,  468. 
Cr.,"613.  118,  Green's  Brice's  Ultra  Vires,  p.  42. 

113,  Atty.  Gen'  1  v.  Mayorof  Poole,4  My.  and 
Cr.,  17. 


14  ULTRA  YIRES. 

ment  to  give  value  or  return  the  value  received.^^^  This  prin  - 
ciple  was  departed  from  in  Ex  jmrte  Williamson /^o  j)ut  waS 
revived  In  re  Durham  Co.,  &c.,  Building  Society .^-^ 

In  Burges'  and  Stokes'  case,^—  a  life  insurance  company 
had  extended  its  business  to  marine  insurance.  This  exten- 
sion was  held  to  be  ultra  vires,  and  the  holders  of  the  marine 
policies  were  not  allowed  to  prove  for  the  value  of  them.  As 
to  the  premiums,  however,  Page- Wood,  V.  C,  said:  "It  is 
"  proved  that  they  did  so  receive  and  apply  these  premiums, 
"  and  the  amount  might  have  been  recovered,  even  at  law,  as 
"money  had  and  received.  The  proof  must  therefore  be  al- 
"  lowed  for  the  amount  of  the  premiums  paid." 

In  Hall  V.  The  Mayor,  &c.,  of  Swansea,i^  it  was  held  that 
the  proprietor  of  tolls  wrongfully  taken  and  withheld  from 
him  by  a  corporation  could  sue  the  corporation  in  assumpsit 
for  money  had  and  received. 

The  leading  case  on  this  phase  of  the  subject  is  JEx  parte 
Chippendale.^-^  In  this  case  ajoint  stock  company  was  formed 
in  England  for  working  a  mine  in  Germany.  The  capital 
was  limited  and  the  directors  had  no  power  to  raise  money 
except  by  creating  new  shares.  The  mine  was  in  danger  of 
being  seized  under  the  law  of  the  country,  as  the  miners' 
w^ages  were  in  arrears.  To  prevent  this  the  directors,  upon 
their  own  personal  guarantee,  borrowed  sums  from  the  com- 
pany's bankers  to  pay  the  company's  debts.  The  directors 
afterwards  paid  the  bankers,  and  when  the  company  was 
wound  up,  it  was  held  that  borrowing  the  money  was  ultra  uireSj 
but,  as  it  had  been  for  the  benefit  of  the  company,  the  direc- 
tors being  trustees,  were,  in  that  character,  entitled  to  indem- 
nity from  their  cestuis  que  trustent  against  expenses  incurred 
bona  fide. 

In  Ex  parte  Bignold'^^o  ^q  directors  of  a  trading  corpora- 
tion, without  power  to  borrow  money,  had  incurred  a  large 
debt  on  account  of  the  company  in  due  conduct  of  its  affairs. 
It  was  held  that  the  deed  of  settlement  did  not  limit  the  lia- 
bility of  each  member  to  the. amount  of  his  shares,  as  named 
in  the  deed,  and  that  the  directors  were  entitled  to  be  repaid 
by  a  call  upon  the  shareholders. 

119,  East  IX)ndon  and  X.  W.  R.  Co.  v.  Bai-  Lake  Bank  v.  North,  4  Johns  Ch.,  37f.; 

lev,  4  Bing..  28;i;  Mavor  v.  Charlton,  6  Zoetman  v.  San  Francisco,  20Cal.,  96. 

M".  and  W.,  815;  Pavne  v.  Strand  Union,  120,  L.  R.,  5  Ch.,  :«)9. 

8  Q.  B..  32G;  Allegheny  City  v.   Mc-  121,  I-.  R.,  li  Eq.,  521. 

Clurkan,s«;>^ra;  Moss  v.Rossie&c,  supra;  1'22,  2  J.  and  H.,  441. 

.Steamboat  Co.  v.  jreCutcheon,    3  Pa.  123,  5  Q.  B.,  526. 

St.,  13:  Balto.  V.  Reynolds,  20  Md.,  i;  124,  4  De..  G.  M.  and  G.,  19. 

Dill  V.  Wareham,  7  Met.,.438;  Ar^enti  125,  22  Beavan,  ,43. 
V.  City  of  San  Francisco,  supra;  Silver 


UI.TRA  VIEES.  15 

In  Loiindes  v.  Gariiett,^-*^  one  of  the  directors  of  tlie  com- 
pany made  advances  to  meet  the  necessary  expenses  of  car- 
rying on  the  concern,  which  was  not  in  accordance  with  the 
borrowing  powers.  Page- Wood,  V.  C,  hekl  tliat  the  direc- 
tors were  entitled  to  recover  the  money  advanced. 

In  re  Cork  and  Yaughal  li.  Co.,^^  the  company  had  ex- 
pended its  authorized  capital,  and  resolutions  were  passed  to 
raise  money  in  order  to  purchase  rolling  stock,  &c.  And 
though  this  act  was  ulim  vires,  because  the  company  had  ex- 
hausted its  borrowing  powers,  yet  it  was  held  that  the  persons 
to  whom  they  were  indebted  should  l)e  reind)ursed  to  the 
extent  to  which  their  loans  had  been  used  by  the  company. 

This  indicates  the  law  in  England,  but  in  this  country  this 
doctrine  is  more  particularly  held  of  such  acts  of  private  cor- 
porations as  are  expressly  or  by  necessary  implication  pro- 
hibited. 

In  White  v.  Franklin  Bank,^'-^  the  contract  was  in  violation 
of  an  express  prohibition,  and  it  was  held  that  the  contract 
could  not  be  enforced,  but  that  the  money  paid  could  be 
recovered. 

In  Underwood  v.  Newport  Lyceum^^  it  was  held  that 
though  the  cliarter  of  a  corporation  may  not  confer  the  power 
of  banking  or  issuing  checks  to  pass  as  currency,  and  it  may 
be  a  penal  oifense  to  issue  such  notes  or  checks,  yet  it  must 
pay  for  plates  and  checks  and  notes  procured  to  be  made  by 
its  officers,  although  such  contract  is  ultra  cires.  In  Dill  v. 
"Wareham,!^  the  corporation  had  raised  money  in  advance 
on  an  unauthorized  contract  and  the  money  was  recovered  in 
an  action  for  money  had  and  received. 

In  Oneida  Bank  v.  Ontario  Bank  the  bank  issued  a  post 
dated  draft.  Acording  to  the  statutes  of  the  State  this  was 
not  only  ultra  vires  and  void,  but  illegal,  being  prohibited. 
The  court  held  that  the  party  who  had  taken  it  upon  a  loan 
of  money  to  the  bank,  Avas  entitled  to  recover  the  money  so 
loaned  upon  it,  either  upon  the  ground  of  the  contract  of  loan, 
or,  for  money  had  and  received.^^^ 

Concerning  acts  ultra  vires  in  the  secondary  sense,  the 
courts  have  given  relief  by  applying  the  doctrine  of  estoppel 
in  pais  to  exclude  the  defense  in  three  classes  of  cases : 

126,  33  L.  J.  Ch.,  418.    To  the  same  effect       12S,  22  Pick.,  181. 
see  29  Beavan,  a53.  129,  5  B.  Mon.,  129. 

127,  L.  R.,  4  Ch.,  748;  see  also  Ulster  R.  R.        130,  7  Met.,  438. 

Co.   V.  Banbridge,  &c.,  R.   R.  Co.  Ir.       131,  21  N.  Y.,  490.    Further  as  to  the  right 
R.,  2  Eq.,  190,  and  L.  R.,  17  Eq.,  181.  to  recover  see  Hunt,  J.,  i9Wall.,  p.  484, 


16  ULTRA  VIRES. 

1.  Where  the  stockholders  have  acquiesced  in  or  ratified 
the  proceeding,  the  plea  of  ultra  vires  is  inadmissible. 

Acts  are  ultra  vires  in  the  secondary  sense,  only  because  of 
the  extraordinary  circumstances  under  which  they  are  per- 
formed, or  because  of  the  purpose  of  the  corporation,  or 
because  of  the  absence  of  requisite  conditions,  and  they 
"  violate  those  provisions  of  the  charter  which  regulate  the 
"rights  of  the  corporators  with  each  other."  A  corporation 
may  do  an  act  illegal  or  ultra  vires  in  the  primary  sense,  and 
the  conduct  of  the  stockholders  will  not  then  attect  the  act.  ^^ 
But  if  the  act  is  simply  ultra  vires  in  the  secondary  sense, 
through  a  want  of  power  which  affects  only  the  interest  of  the 
stockholders,  the  assent,  acquiescence  or  ratiiication  of  the 
stockhholders,  will  exclude  the  defense  of  z^^^/'ar/rei"  to  actions 
by  strangers  dealing  in  good  faith  with  the  corporation.  ^^ 
This  assent  or  ratification,  as  pointed  out  by  Lord  St.  Leon- 
ards in  Spackman  v.  Evans,^^  does  not  require  that  each 
shareholder  had  actual  notice ;  it  is  sufficient  that  the  thing 
to  be  ratified  came  to  the  knoM^ledge  of  all  who  chose  to 
inquire,  and  to  which  they  ought  to  have  objected,  unless 
they  propose  to  adopt  the  transaction. 

Ratification  is  generally  inferred  from  the  proceedings  of 
the  parties,  and  may  be  by  the  members  as  a  ivhole  or  by 
their  agents.^^  An  act  which  is  illegal  or  contrary  to  public 
policy  cannot  be  ratified.^^ 

Li  England  if  the  act  were  prohibited  it  could  not  be  rati- 
fied,^^"  though  in  this  country  there  is  a  difterence.  Acts 
expressly  or  impliedly  prohibited  are  not  void  as  against  one 
dealing  with  the  corporation  in  good  faith  unless  the  act  is 
pronounced  void.^^  Justice  Swayne  said,  "the  question  is, 
"  did  the  legislature  not  only  prohibit  the  act,  but  declare 
"  iiirther  that  the  prohibited  act  shall  be  void?"  Whatever  a 
corporation  can  authorize  its  officers  to  do,  it  can  ratity  when 
the  act  has  been  performed,^^^  but  it  must  be  by  those  who 
might  have  given  authority  at  first,  and  not  l3y  individual 
members.^^"  The  parties  ratifying  must  have  power  at  the 
time  the  ratification  was  made.^^^    A  contract  ratified  by  the 

132,  9Exch.,  244;  OHisk,  543.  138,  National  Bank  v.   Matthews,  8  Otto, 

133,  Empire  Trans.  Co.  v.  Blanchard,  supra:  625;  Stephens  v.    Monongahela    Nat. 
Sandford  v.  ^Etna  Iron  and  Nail  Co.,  Bank,  7  X.  W.,  491. 

supra.  139,  McLaughlin  v.  D.  and  M.  R.  R.  Co.,  8 

134,  L.  R..  3  H.  L.,  222.  Mich.,  100. 

135,  Green's  Brice's  Ultra  Vires,  548.  140,  Taymouth  v.   Koehler,  35  Mich.,  22; 

136,  Mr.  Justice  Blackburn,  L.  R.,  7  H.  C,  also  Tracy  v.  Cuthrie  Co.   Agric.  Soc., 
673.  47  Iowa,  27. 

137,  Taylor  v.  Railway  Co.,  L.  R.,  2  Ex.  141,  Cook  v.  Tullis,  18  Wallace,  332;  Wood 
Ch.,  379.  V.  McCain,  7  Ala.,  806. 


ULTRA  VIKES.  17 

shareholdert*  will  l)e  ol)lig'atorv  though  the  corporation  had 
no  power  to  make  it.^'-  Kvcn  an  unauthorized  ])aynient  of  a 
town  treasurer  may  he  ratified  bv  a  vote  of  a  town  meeting 
accepting  his  re}>()rt  in  which  such  payment  appears.^^"^  This 
principle  is  true,  not  only  of  actions  of  strangers  against  the 
corporation,  but  also  where  shareholders  seek  relief  against 
an  unauthorized  act;  and  no  majority,  however  large,  can 
bind  a  dissenting  shareholder,  but  he  must  ask  for  his  relief 
in  time.^^^  Acts  directly  contrary  to  the  provisions  of  the 
charter,  if  they  be  acquiesced  in,  cannot  be  avoided  after  third 
persons  have  acted  upon  them.^-*^ 

In  the  leading  ease  of  Phosphate  of  Lime  Co.  r.  Greene,^'*'"' 
where  defendant  had  purchased  400  shares  of  the  company's 
stock,  but  failing  to  pay  for  the  shares  they  were  cancelled, 
this  compromise,  acceptance,  and  cancellation  of  their  own 
stock  was  ultra  rires  according  to  the  articles  of  association. 
It  was  acquiesced  in  five  years,  and  on  lic^uidation  of  the 
company,  the  liquidator  brought  an  action  to  obtain  payment 
for  the  400  shares,  but  Brett,  J.,  held  there  could  be  no  recov- 
ery from  the  defendant. 

In  Erie  R.  Co.  r.  D.  L.  and  A\^.  and  M.  and  E.  Co., i^'  the 
complainants  claimed,  under  their  charter,  the  exclusive  right 
to  a  railroad  between  Paterson  and  Hoboken.  They  saw  the 
defendants  build  a  road  in  sight  of  theirs  and,  finally,  they 
sold  to  them  a  part  of  their  land  to  help  to  complete  the 
road.  These  acts  were  held  by  Beasley,  C.  J.,  to  be  sufiicient 
to  debar  the  complainants  from  ever  calling  in  question  the 
lawfulness  of  the  structure. 

In  Kent  v.  Quicksilver  Mining  Co.,i^^  the  complainants' 
charter  gave  no  authority  to  issue  preferred  stock,  and  the 
company  did  make  such  issue  by  authority  of  by-laws  passed 
at  a  regular  meeting.  The  stock  was  dealt  in  for  four  years, 
and  then  an  action  was  brought  to  obtain  ajudicial  declara- 
tion that  the  company  had  exceeded  its  powers  in  creating 
the  stock,  but  the  corporation  was  held  by  the  court^to  have 
acquiesced  and  ratified  the  act  and  to  be  bound  by  it. 

But  to  bind  the  members  where  the  acts  in  question  are 
clearh'  ultra  vires  of  the  directors,  though  intra  rires  of  the 
corporation,  it  must  appear  that  the  members  were  duly  in- 
formed.i^^    And  it  was  held  where  directors  had  exceeded 

142,  Aurora  Agric.  Soc.  v.  Paddock,  supra.  146,  L.  R.,  7  C.  P.,  43. 

143,  Arlington,  v.  Pierce.  122  Mass.,  '270.  147,  N.  J.  Equity,  283. 

144,  37  CaL,  .W3.  148,  12  Hun.,  53. 

145,  Hazelhurstv.  Savannah  R.  R.  Co.,  43  149,  Idetn. 
Ga.,  52. 


18  ULTRA  VIRES. 

their  authority,  by  allo^\^ng  members  to  forfeit  their  shares 
and  retire  from  the  company,  that  the  acquiescence  of  the  re- 
maining shareholders,  in  the  absence  of  proof,  must  not  be 
presumed  ;^^  and  that  a  member  is  not  bound  to  know,  and 
practically  he  cannot  know,  whether  a  director  is  acting 
within  or  exceeding  the  scope  of  his  authority.^^^  But  it  was 
ratification  for  a  corporation  to  take  possession  of  property 
and  use  it  for  corporate  purposes,  when  its  officers  had  given 
notes  for  it,  and  its  power  to  hold  it  was  doubtful.^^^ 

Li  Renter  v.  Electric  Tel.  Co.,i*Hhe  deed  of  settlement  de- 
clared that  the  directors  shall  manage  all  the  aifairs  of  the 
corporation,  and  that  all  contracts  above  a  certain  value  were 
to  be  signed  by  three  directors.  A  contract  above  tliat  value 
was  made  by  the  chairman  alone.  The  plaintiff  did  work 
under  it  and  received  ]javment.  Tlie  court  held  the  contract 
was  ratified  by  the  directors  and  the  company. 

And  also  it  was  held  ratification  by  the  company  where 
a  railroad  allowed  its  president  to  purchase  locomotives, 
and  give  bills  in  payment  thereof,  and  operate  the  road 
for  three  years  vN-ithout  questioning  the  accounts  rendered  by 
that  officer ;  1**  also  where  the  governing  board  knew,  and 
did  not  disapprobate,  the  act  of  an  officer  in  paying  out  bank- 
notes contrary  to  a  general  statute ;  ^^^  likewise  where  the 
manager  of  a  mining  corporation,  with  power  to  make  neces- 
sary contracts,  had  purchased  a  house  as  an  office  tor  the  cor- 
poration and  several  meetings  of  the  trustees  were  held  in  it; 
1^  and  again  where  the  cashier  of  a  bank,  without  authoritA', 
drew  ti'om  their  bank  and  loaned  part  of  the  ftmds  deposited 
there  by  the  corporation,  and  at  once  notified  the  corpora- 
tion's officers,  and  subsequently  at  a  meeting  of  the  board  of 
managers,  action  was  taken  concerning  the  loan,  but  no  dis- 
satisfaction was  expressed ;  ^^"  also  where  a  mortgage  of  the 
corporate  property  was  made  by  the  president  without  spe- 
cial authority  and  tliere  was  long  knowledge  of  the  fact  by 
the  corporation.^'^ 

But  it  was  held  not  to  be  a  ratification  where  the  articles 
of  a  joint  stock  company  prohibited  its  officers  from  making 
purchases  on  credit,  and  they  purchased  goods  on  credit  and 
received  the  goods  into  its  store,  and  were  seen  by  the  mem- 

150,  Spackman  v.  Evans,  supra.  155,  Christian   University   v.    Jordan,  29 

151,  Downs  V.  Ship  L.  R.,  3  H.  L.,  343.  Mo.,  68. 

152,  Moss  V.  Averill,  supra.  156,  Shaver  v.  Bear  River  Co.,  10  Cal.,  396. 

153,  6  E  and  B.,  341.  157,   New    Hope  and    D.    Bridge  Co.    v. 

154,  Olcott  v.  Tioga  R,  R.  Co.,  27  X.  Y.,  546.  Phoenix  Bank,  3  N.  Y.,  156. 

158,  Sherman  v.  Fitch,  98  Mass.,  59. 


ULTRA  VIRES.  19 

bers,^^^^  nor  where  the  luinority  of  the  board  of  trustees  of  a 
mining  corporation  knew  that  the  president  had  leased,  with- 
out authority,  certain  of  its  mining  grounds,  and  that  the 
rents  were  reported  by  the  superintendent  as  money 
received  for  ores  sold.^**^  To  charge  a  corporation  with  the 
ratification  of  an  unauthorized  or  illegal  act,  because  it  ac- 
cepted the  benefit,  it  should  appear  that  the  benefit  was  re- 
ceived with  full  knowledge  of  the  character  of  it.i*^^  The 
inadmissibility  of  the  plea  of  ultra  vires,  where  there  has  been 
a  ratification  by  the  corporation,  is  nowhere  better  illustrated 
than  in  the  leading  case  of  Miners'  Ditch  Co.  v.  Zellerbach.^''- 
The  trustees  of  the  Miners'  Ditch  Company,  without  authority, 
conveyed  by  deed  under  the  corporate  seal,  duly  acknowl- 
edged and  recorded,  certain  property  to  another  corporation. 
The  latter  corporation  remained  in  possession,  and  made  many 
valuable  improvements  and  paid  ofl:'  mortgages  created  by 
the  former.  Finally,  the  latter  mortgaged  it  to  the  defend- 
ants, strangers,  without  notice.  They  in  turn  purchased  it  at 
sherifi:^s  sale  made  at  the  instance  of  another  creditor.  IS^o 
claim  was  made  to  the  property  by  the  Miners'  Ditch  Com- 
pany for  five  years.  Sawyer,  C.  J.,  said:  "  The  corporation 
"  itself  is  plaintiff.  After  five  years  acquiescence  and  long 
"  after  the  property  has  passed  into  the  hands  of  innocent 
"  parties,  who  have  advanced  sums  of  money  upon  the  faith 
"  of  its  apparent  acts,  paid  ofit*  large  liens  and  greatly  ex- 
"  tended,  improv^ed,  and  increased  the  value  of  the  property, 
"this  corporation  seeks  to  avoid  its  deed."  He  held  this 
could  not  be  done  and  that  the  defendants  had  a  good  and 
valid  title  in  law  and  equity. 

The  principle  of  acquiescence  and  ratification  applies  more 
particularly  to  private  corporations  organized  for  pecuniary 
gain.  If  they  have  engaged  in  unauthorized  acts  to  increase 
their  gain,  the  assent  of  the  members  will  be  presumed,  when 
it  is  necessary  to  carry  out  justice,  but  municipal  corporations- 
stand  upon  a  different  ground,  and  debts  contracted  in  an  un- 
authorized manner  by  the  officers  cannot  be  binding  upon 
the  tax-payers  by  their  presumed  assent.^*^-^ 

2d.  When  the  contract  has  been  executed  or  partly  exe- 
cuted on  either  side,  the  plea  is  inadmissible.  If  a  contract 
ultra  vires  of  a  corporation  is  executed  or  partly  executed,  it 
will  be  enforced  in  the  United  States  (though  it  is  different 

159,  Hotchkin  v.  Kent,  8  Mich.,  526.  161,  Idem. 

J60,  Yellow  Jacket  Mining  Co.,  v.  Steven-       162,  37  Cal.,  54.3. 

son,  5  Nevada,  224.  163,  Bradley  v.  Ballard,  supra, 


20  ULTRA  VIRES. 

in  England),^^  provided  it  is  not  in  violation  of  the  charter  or 
some  statute  prohibiting  it.^®  As  long  as  the  terms  of  the 
contract  remain  unexecuted  on  both  sides,  at  the  instance  of 
a  stockliolder  or  any  other  person  authorized  to  make  the 
application,  a  court  of  chancery  will  interfere  and  forbid  the 
execution  of  a  contract  ultra  vires}^  Although  a  corporation 
in  making  a  contract  "  acts  in  disagreement  of  its  charter 
"  where  it  is  simply  a  question  of  authority  or  capacity  to  con- 
"  tract,  either  on  a  question  of  regularity  of  organization  or 
"  power  conferred  in  tlie  charter,  a  party  who  has  had  the 
"benefit  of  the  agreement,  cannot  deny  its  validity,"  *  * 
as  "  it  would  be  in  the  highest  degree  inequitable  and  unjust 
"  to  permit  the  defendant  to  repudiate  a  contract,  the  fruits 
"of  which  he  retains. "^^^ 

K  a  corporation  recede  after  it  has  executed  a  contract  and 
restitution  will  not  aftbrd  complete  justice,^**  the  other  con- 
tracting party  may  have  it  enforced.^^^  A  growing  tendency 
of  the  courts  warrants  the  statement  that  this  is  true  of 
municipal  as  well  as  private  corporations.^™ 

It  was  held  that  the  defense  of  ultra  vires  was  inadmissible 
where  a  mining  corporation  was  sued  by  a  national  bank  for 
money  loaned  in  excess  of  its  powers  ;i^^  and  again  where  an 
action  was  brought  by  a  railroad  to  recover  the  value  of  re- 
pairs which  had  been  made  upon  a  steamboat  without  au- 
thority, bought  and  sold  by  it  ;^''-  and  likewise  where  a  na- 
tional bank  brought  suit  to  recover  money  paid  for  the  pur- 
chase of  promissory  notes,  though  it  had  no  power  to  make 
such  purchase, ^'"^  and  in  a  foreign  corporation  which  had  ex- 
ceeded its  powers  in  making  a  loan.^^^  And  it  was  inadmissi- 
ble in  the  case  of  a  corporation  organized  to  manufacture  . 
fire-arms,  which  had  sold  and  delivered  a  large  number  of 
railroad  locks  ;  ^'^  also  where  a  corporation  had  issued  notes 
without  express  authority  and  had  received  value  on  them  f^^ 
and  where  a  city  had  issued  bonds  without  authority  and  a 
plank-road  company  had  received  the  benefit  of  them.^~ 

164,  Green's  Brice's  Ultra  Vires,  p.  42.         "  kan,  supra;  B.  C.  R.  &  :M.   R.  Co.  v. 

165,  St.  Bd.  of  Agr.  v.  Street  R.  Co.,  47  Ind.,  Stewart,  39  Iowa,  267. 

407.  171,  Gold  Min'g  Co.  v.  Nat.  Bank  96,  U. 

166,  Bra dlev  V.  Ballard,  supra.  S.,  604. 

167,  Sedg.  Stat,  and  Const.   Law,  2  VA.,  73;  172,  Rutland  &  B.   R.   R.  Co.   v.  Proctor, 
Twp.   of  Pine   Grove  v.    Taleott,    19  29  Vt..  98. 

Wall.,  666.  173,  Attleborough  Kat.  Bank  v.   Rogers, 

168,  Comstock,  J.,  in  Bissell's  Case,  supra.  Mass.,  3.39. 

169,  Oil  Creek  &  C.  R.  Co.  v.  Pa.  Trans.  Co.,  174,  Silver  Lake  Bank  v.  North,  supra. 
2  Norris,  160.  175,  Whitney  Arms  v.  Barlow,  supra. 

170,  Argenti  v.  City  of  San  Francisco,  16  176,  McClnrkan's  Case,  supra. 

Cal.,  255;  Allegheny  City  v.  McClur-       177,  City  Council  of  Montgomerj'  v.  M.  &. 

W.  Plk.  Rd.  Co.,  supra  ;  55  nis.,  417. 


ULTRA  VIRES.  21 

Bradley  v.  Ballard  ^'^^  is  a  leading  case  in  this  phase  of  the 
subject,  A  corporation  was  organized  in  the  State  of  Illinois 
for  the  purpose  of  mining.  The  mining  operations  were 
carried  on  in  Colorado.  Money  was  borrowed  for  that  pur- 
pose, and  the  corporation  set  up  the  defense  of  ultra  vires  to 
an  action  brought  for  recovery.  Lawrence,  C.  J.,  said: 
"  While  the  contract  remains  unexecuted  on  both  sides  it  can- 
"  not  be  enforced,  but,  when  under  cover  of  this  principle, 
"  a  corporation  seeks  to  evade  the  payment  of  borrowed 
"  money,  on  the  ground  that  it  expended  the  money  in  prose- 
"  cuting  a  business  which  it  was  not  authorized  to  prosecute, 
"  is  pressing  the  doctrine  of  ultra  vires  to  an  extent  which  can 
"  never  be  tolerated." 

In  the  State  Board  of  Agriculture  v.  Citizens'  Railway 
Co.  ^"3  the  company  offered  a  certain  sum  of  monej^  to  the 
State  Board  of  Agriculture  on  condition  that  the  State  Fair 
should  be  held  on  grounds  near  the  terminus  of  their  road,  &c. 
The  board  accepted  the  offer,  and  acted  accordingly,  but  the 
street  railway  company  refused  to  pay  the  sum  offered,  on 
the  ground  that  it  had  no  authority  to  make  such  contract. 
Downey,  J.,  said:  "The  street  railway  company  has  re- 
"  ceived  the  benefits  and  ajivantages  of  the  contract,  but  seeks 
"  to  avoid  the  payment  of  the  consideration  promised  because 
"  it  had  not  the  legal  power  to  contract  for  the  benefits  which 
"  it  has  actually  received.  In  our  opinion  the  street  railway 
"  company  is  not  at  liberty  to  assume  this  position." 

The  application  of  this  principle  is  further  shown  in  the  case 
of  Bissell  V.  The  Michigan  Southern,  &e. ,  R.  Co.'«"  This  action 
was  for  negligence  by  the  defendants,  whereby  the  plaintiff  was 
injured.  The  defense  was  that  the  operation  of  the  road  at 
the  time  and  place  was  ultra  vires  and  void.  C.  J.  Comstock 
held  that  the  company  were  liable,  saying :  "They  have  received 
"  the  benefit  of  the  contract,  and  then  when  liability  arises 
"  interpose  the  violation  of  their  own  charter  to  shield  them 
"  fi'om  responsibility.  *  *  *  Such  a  doctrine  is  not  only 
*•  shocking  to  the  reason  and  conscience  of  mankind,  but  it 
"  goes  far  beyond  the  law  in  regard  to  illegal  contracts  of  pri- 
"  vate  individuals,  *  *  *  and  though  it  seems  to  have 
"  some  support  in  judicial  opinion,  itlias  no  foundation  in  law." 

And  in  the  latest  case,  that  of  Wright  &  Kimball  v.  The 
Antwerp  Pipe  Company  et  al.,  ^^i  decided  in  Pennsylvania  in 

179,  Supra.  tained  the  same  opinion  in  Parish  v. 

180,  22d  New  York,  258.   Selden,  J.,  main-  Wheeler,  2-2  X.  Y.,4!M,  and  it  is  now 
tained  the  negative  of  the  question,  reco^ized  law. 

but  the  majority  of  the  court  were  with       181, 13  Pittsburg,  L.  J.,  No.  25,  p.  235. 
Comstock,  and  he  afterwards  main- 


22  ULTRA  ViRES. 

1883,  a  suit  was  brought  on  promissory  notes  given  in  consid- 
eration of  certain  stock  duly  delivered  and  accepted.  The 
defendants  pleaded  ultra  vires,  that  their  charter  prohibited 
the  purchase  of  such  stock.  The  court  held  the  defendants 
liable,  saying :  "  They  accepted  the  stock  and  gave  their  notes 
"  in  payment,  for  which  notes  the  plaintiff  gave  value  in  good 
"  faith,  and  the  plea  of  ultra  vires  comes  from  them  with  bad 
"  grace.  *  *  *  If ,  as  the  defendants  allege,  they  had  vio- 
"  lated  their  charter,  it  is  a  matter  that  is  within  the  cogni- 
"  zance  of  the  attorney-general." 

On  this  question  of  the  inadmissibility  of  the  plea  of  ultra 
vires  to  executed  contracts,  the  federal  courts  point  the  same 
way  as  those  of  the  State.^^^  j^  appears,  then,  that  the  de- 
fense of  ultra  vires  remains  in  full  force  only  where  the  con- 
tract is  executory.i*^  But  an  executed  contract  will  be  en- 
forced even  though  the  State  may  proceed  against  the  corpo- 
ration by  quo  warranto  for  a  forfeiture  of  its  charter. 

3d.  Special  proceedings  will  be  upheld  sometimes  though 
ultra  vires  in  themselves  as  being  necessary  to  justice.^^  As 
where  there  has  been  a  general  restriction  in  the  charter,  an 
isolated  case  of  excess  beyond  the  limits  prescribed,  has  been 
protected  and  the  contract  held  binding,  when  the  general 
practice  of  a  corporation  has  been  in  strict  conformity  with  its 
charter.  In  Potter  v.  Bank  of  Ithaca  ^^^  the  charter  provided 
that  its  operations  of  discount  and  deposit  should  not  be  car- 
ried on  elsewhere  than  in  the  village  of  Ithaca.  The  cashier 
discounted  a  note  in  ISTew  York  city  for  the  purpose  of  secur- 
ing a  demand  due  the  bank.  It  was  held  binding.  Also  in 
Sacketts  Harbor  Bank  v.  Le^vis  County  Bank,i*^  the  defend- 
ants had  purchased  a  large  quantity  of  merchandise  from 
the  plaintiffs.  Both  charters  prohibited  the  dealing  and  trad- 
ing in  merchandise,  &c.,  unless  in  selling  the  same  when  truly 
pledged  by  way  of  security  for  debts  due  the  corporations. 
It  was  held  an  isolated  case  and  binding  on  both  corporations. 

Courts  are  plainly  adverse  to  the  plea  of  ultra  rires.  And 
while  they  are  inclined  to  prevent  the  execution  of  contracts, 
where  in  entering  into  them  corporations  have  exceeded 
their  powers,  yet  where  there  have  been  benefits  received 
under  such  contracts,  if  in  the  primary  sense  they  will  either 
put  such  a  construction  upon  the  charter  of  the  corporation 
a^  to  hold  it  incidental  to  its  powers,  or  allow  a  recovery  of 

182,  Bradley,  J.,  Galveston  R.  Co.  v.  Cow-  183,  Webber  v.  Agrie.  Soc,  44  Iowa.  239. 

drey,  li"  Wall.,  4.')9;  Davis,  J.,  Smith  v.  184,  Green's  Brice's  Ultra  Vires,  p.  42. 

Sheeby,    12    Wall.,    358;    Miller,    J.,  18.5,  Potter  v.  Bk.  of  Ithaoa,  5  fflll.,  490. 

Thomas  v.  R.  R.  Co.,  101  U.  S.,  7l.  186,  11  Barb.,  213. 


ULTRA  VIRES.  23 

the  value  received ;  if  iu  the  secondary  sense,  they  will  en- 
force its  performance,  if  there  has  been  acquiescence  or  rati- 
fication by  the  corporation,  or  if  it  is  executed  on  either  side. 
It  will  be  enforced  if  the  act  were  directly  prohibited  by  the 
charter  (provided  the  act  was  an  isolated  one)  and  such  en- 
forcement would  further  the  ends  of  justice. 

It  seems  that  Allen,  J.,  in  AVhitney  Arms  Company  v. 
Barlow,^*^"  sums  up  the  whole  law  as  to  contracts  ultra  vires  of 
corporations  in  these  words:  "The  plea  of  ultra  vires  should 
"  not,  as  a  general  rule,  [irevail,  whether  interposed  for  or 
"against  a  corporation,  when  it  would  not  advance  justice, 
"but,  on  the  contrary,  would  accomplish  a  legal  wrong.'' 

But,  as  before  stated,  a  corporation  is  liable  for  its  torts 
and  frauds,  and  since  every  tort  is  in  a  measure  ultra  vires,  it 
is  no  legal  defense  to  set  up  that  argument. 

In  Merchants'  Bank  v.  State  Bank'**  it  was  held  that  the 
doctrine  of  ultra  vires  did  not  apply.  A  cor})oration  must  do 
all  its  acts  throught  its  agents,  and  for  their  acts  it  is  responsi- 
ble to  the  same  extent  as  a  natural  person. ^^^  It  will  be  liable 
for  every  degree  of  malicious  or  negligent  tort  or  wrong 
which  it  commits,  even  if  the  wrongful  act  is  foreign  to  its 
nature  or  beyond  its  granted  powers.^^  A  railroad  was 
held  liable  for  the  negligence  of  its  agents  operating  a  road 
beyond  its  authority,'^'  and  it  is  not  necessary  that  the  cor- 
poration should  previously  authorize  or  subsequently  ratify 
the  act,  in  order  to  render  it  responsible  for  the  tort  or 
fraud.192 

The  courts  in  giving  relief  to  third  parties  in  ultra  vires 
contracts  have  virtually  destroyed  the  strongest  arguments 
supporting  ultra  vires,  and  the  State  and  the  shareholders,  by 
so  doing,  have  been  deprived  of  rights  and  privileges.  And 
this  liberal  interpretation  of  corporate  rights,  this  right  to 
recover  value,  this  enforcement  of  contracts  executed,  etc., 
becomes  an  infringement  of  the  remaining  and  reserved 
rights  of  the  State  and  permits  the  corporation  to  do  what  it 
wtis  never  intended,  and  may  cause  the  public  to  lose  its  ex- 
pected benefits  and  the  stockholders  their  anticipated  profits. 

The  State  has  a  remedy  and  so  have  the  stockholders.  For 
ultra  vires  acts  the  former  may  exact  a  forfeiture  of  the  char- 
ter of  a  corporation,  the  latter  may  restrain  the  commission 

187,  Supra.     Also    Union    Water   Co.    v.  190,  Phila.  and  Balto.  R.  Co.  v.  Quigley, 

Murphy's  Fluming  Co.  et  al.,  22  Cal..  21  Howard,  2i(9. 

620;  Morris  R.  R.  Co.   v.  McCartliy,  96  191,  Bissell's  Case,  supra. 

U.  S.,  258.  192,  Brice's  Ultra  Vires,  p.  358,  note  b.  See 
188, 10  Wallace,  f)45.  full  discussion  of  this  subject  pp.  331- 

189,  N.  Y.  and  N.  H.  R.  Co,  v.  Schuyler,  366. 

34  N.  Y.,  50. 


ir-Gan'^^ 


24  ULTRA  VIRES. 

of  the  act.  For  any  abuse  or  misuse  of  corporate  authority 
or  breach  of  trust,  the  State  will  exercise  its  authority.^^^  If 
it  aims  simply  to  suspend  for  a  while  the  franchise,  the  pro- 
ceeding is  by  quo  warranto,^^  but  if  it  is  to  repeal  the  charter 
it  is  hy  scire  facias }^^  If  a  corporation,  by  reason  of  its  char- 
ter, were  empowered  to  transact  certain  business  and  should 
engage  in  a  totally  different  pursuit  having  no  connection 
with  the  former,  (as  for  example  a  change  from  insurance  to 
banking,y^*^  it  would  be  a  sufficient  violation  of  its  contract 
with  the  State,  to  justify  a  repeal  of  its  charter.  Thus  it  ap- 
pears that  the  State,  if  it  wishes  to  exercise  it,  has  a  sufficient 
remedy. 

The  right  of  the  stockholder  is  by  a  proceeding  in  equity 
to  restrain  the  corporation  from  applying  its  powers  to 
purposes  not  within  the  scope  of  its  power ;  this  may  be 
done  by  a  single  shareholder.  Xo  majority,  however  large, 
can  compel  a  dissenting  shareholder  to  submit  to  a  change  in 
the  business,^^^  This  is  recognized  in  the  early  case  of  ]S^a- 
tuscli  V.  Irving.i^  There  a  company  w^as  formed  for  granting 
lire  and  life  assurances.  It  proceeded  to  issue  marine  poli- 
cies. Lord  Eldon  restrained  it  upon  application  of  a  dissent- 
ing shareholder.  This  right  is  universally  recognized  to- 
day.200  Creditors  have  the  same  rights  as  shareholders.  If 
the  stockholders  and  creditors  permit  the  corporation  to  enter 
into  an  ultra  vires  contract,  they  will  not  be  allowed  to  secure 
an  injunction  ;  and  if  the}^  allow  the  company  to  receive  the 
benefit  it  will  be  regarded  as  a  ratification  and  prevent  them 
from  pleading  ultra  vires.'^^  And  it  is  but  justice  that  if  they 
have  permitted  ultra  vires  acts  to  be  done  when  the  interest 
of  third  parties  is  concerned,  they  should  not  be  permitted 
to  restrain  the  corporation  from  performing  the  acts. 

Finally,  it  seems  that  in  every  ultra  vires  act  of  a  corpora- 
tion, three  separate  interests  are  involved,  viz.:  that  of  the 
State,  shareholders,  and  third  })ersons.  The  first  has,  as  we 
have  already  seen,  an  adequate  remedy.  The  second,  if  the 
interest  of  third  persons  has  not  attached,  has  also  an  ade- 
quate remedy,  but  if  the  interest  of  third  parties  is  so  involved, 
that  they  cannot  be  put  in  statu  qao^  the  courts  will  regard 
their  rights  as  paramount  to  those  of  the  shareholders  and 
will  never  enforce  the  strict  doctrine  of  ultra  vires  when  it 
would  work  a  legal  M^rong. 

193,  Mumma   v.    Potomac,    8   Pete.,  281;       197,  Dodge  v.  Wolsey,  18  Howard,  331. 
Comrs.  V.  Wttsburgh  R.  R.  Co.,  58  Pa.        198,  Kean  v.  Johnson,  1  Stock't,  401,   9  C. 
State,  26;  Angell  &  Ames,  g  767,  cases         .     E.  Greene,  455. 

cited.  -  199,  2d  Cooper  Ch.  Case,  part  2,  p.  358. 

194,  Greene's  Brice's  Ultra  Vires,  p.  787.  200,  Dodge  v.  Wolsey,  mpra. 

195,  Idem.  201,  R.  R.  v.  Howard,  7  Wall.,  413. 
1%',  People  V.  Utica  Ins.  Co.,  15'Jolins,  358. 


